BEIJING, Nov. 14 -- China's efficiency in allocating capital and resources is critical to achieve sustainable economic growth in the next few years, a Moody's report said Friday.

"The capital market development will play an important role in allocating resources within the real economy and supporting economic re-balancing," said Jenny Shi, Moody's Country Manager for China,in her latest report concerning China's capital market reform.

Shi identified securitization, reform in local government debt, internationalization of the RMB market and the formation of global connections as four key areas necessary for the development of China's capital market in her report.

China's securitization market -- which is still at a developmental stage -- is playing a key role in deepening the country's credit market, but the diversity of the investor base needs to be broadened to truly shift risks away from the domestic banks, according to the report.

With reform of local government debt, the new guidelines announced by China's State Council in October, together with earlier reform measures, are another milestone in the development of a Chinese local government bond market and in China's broader policy goal of economic re-balancing, Shi said.

The report said that the internationalization of the RMB bond market has progressed significantly and new issuance continues to grow despite the softening in the RMB, which is a strong indicator of the offshore RMB market's successful transition from pure currency play into an international fixed-income asset class.

According to the report, opening up China's capital markets to foreign investors will directly increase the capital pool available to the efforts on economic re-balancing.

The China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission announced on Monday that they had approved the launch of the pilot project to provide mutual-trading access between the Shanghai and Hong Kong bourses.

The launch of the Shanghai-HK stock link is an important step toward completion of a long list of reform targets set in November 2013, when China promised to boost the opening-up of the capital market and speed up convertibility of renminbi on the capital account.